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VRC FY08 Audit Report

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VIRGINIA RACING COMMISSIONREPORT ON AUDIT FOR THE YEAR ENDEDJUNE 30, 2008 AUDIT SUMMARY Our audit of the Virginia Racing Commission for the year ended June 30, 2008, found:  proper recording and reporting of all transactions, in all material respects, in the Commonwealth Accounting and Reporting System;  no matters involving internal control and its operations necessary to bring to management’s attention; and  no instances of noncompliance with applicable laws and regulations or other matters that are required to be reported. - T A B L E O F C O N T E N T S - Pages AUDIT SUMMARY COMMISSION HIGHLIGHTS 1 Schedule of Revenues, Expenses and Changes in Cash Balances – Budget and Actual 2 INDEPENDENT AUDITOR’S REPORT 3-4 AGENCY OFFICIALS 5 COMMISSION HIGHLIGHTS The Virginia Racing Commission controls and prescribes regulations and conditions for all horse racing with pari-mutuel wagering privileges in the Commonwealth. It licenses horse racetracks and satellite facilities and ensures that all their employees have valid Commission permits. The Commission also issues permits to anyone associated with horse racing including horse owners, trainers, jockeys, grooms, veterinarians, and blacksmiths. Pari-mutuel horse racing began in the Commonwealth in September 1997 at Colonial Downs, a privately held racetrack in New Kent County. The Code of Virginia permits up to ten satellite wagering ...

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VIRGINIA RACING COMMISSION

REPORT ON AUDIT

FOR THE YEAR ENDED

JUNE 30, 2008

AUDIT SUMMARY

Our audit of the Virginia Racing Commission for the year ended June 30, 2008, found:



proper recording and reporting of all transactions, in all material respects, in the

Commonwealth Accounting and Reporting System;



no matters involving internal control and its operations necessary to bring to

management’s attention; and



no instances of noncompliance with applicable laws and regulations or other

matters that are required to be reported.

- T A B L E

O F

C O N T E N T S -

Pages

AUDIT SUMMARY

COMMISSION HIGHLIGHTS

Schedule of Revenues, Expenses and Changes in Cash Balances – Budget and Actual

INDEPENDENT AUDITOR’S REPORT

3-4

AGENCY OFFICIALS

COMMISSION HIGHLIGHTS

The Virginia Racing Commission controls and prescribes regulations and conditions for all horse

racing with pari-mutuel wagering privileges in the Commonwealth.

It licenses horse racetracks and satellite

facilities and ensures that all their employees have valid Commission permits.

The Commission also issues

permits to anyone associated with horse racing including horse owners, trainers, jockeys, grooms,

veterinarians, and blacksmiths. Pari-mutuel horse racing began in the Commonwealth in September 1997 at

Colonial Downs, a privately held racetrack in New Kent County.

The Code of Virginia permits up to ten

satellite wagering facilities.

Currently, there are nine satellite facilities operated by Colonial Downs, which

are located in Alberta, Chesapeake (two), Hampton, Martinsville, Richmond (two), Scott, and Vinton.

The

Commission monitors each of these facilities as a part of their regulatory oversight.

The Code of Virginia directs the distribution of the funds in the horse racing wagering pools.

The

percentage distribution varies based on factors such as the type of wagering, whether the race took place

within or outside of the Commonwealth, and whether the wagering occurred at the racetrack or at a satellite

facility.

The Commonwealth retains as a license tax a portion of the wagering pools ranging from

0.75 to 2.25 percent as directed by the Code of Virginia.

All revenues received by the Commission go to a

special fund known as the State Racing Operations Fund.

The Appropriation Act requires the Commission to

transfer any funds in excess of the Commission’s operating expenses to the General Fund of the

Commonwealth.

However, the Appropriation Act contains language allowing the Commission to carry

forward a portion of its unspent appropriation related to the promotion and marketing, sustenance, and growth

of the Virginia horse industry as long as it makes its required transfer to the General Fund.

At June 30, 2008,

the Commission had a cash balance of $453,595 in its operating fund related mostly to unspent marketing

funds.

The Commission transferred the amount required by the Appropriation Act to the General Fund during

fiscal year 2008.

The Code of Virginia also created the Virginia Breeders Fund to support an incentive program to

foster the industry of breeding racehorses in Virginia.

It receives a one percent distribution of the horse

racing wagering conducted in the Commonwealth.

The Commission contracted with the Virginia

Thoroughbred Association and the Virginia Harness Horse Association to manage the fund.

The incentive

program provides purses for races restricted to Virginia bred or sired horses and awards to the owners and

breeders of Virginia bred horses that win or earn purse money in races designated by the Commission.

During fiscal year 2008, the Commission made payments of $1,934,254 from the Breeders Fund consisting of

$1,082,467 in purse money, $521,787 in incentives to owners and breeders, and $330,000 in management

fees to the Virginia Thoroughbred Association and the Virginia Harness Horse Association.

At year-end, the

cash balance in the Breeder’s Fund was $685,734.

The cash balance does not revert to the General Fund.

Below are the results of the fiscal year 2008 financial operations of the Virginia Racing Commission.

There was a decline in the amount wagered on horse racing in the Commonwealth due primarily to the

conditions of the economy and the price of fuel.

The decline started in November of 2007 and continued

through the end of fiscal year 2008.

The total amount wagered in this eight month period, when compared to

the same eight month period of the prior year, was down 8.4 percent.

The commission spent less than

budgeted for Personal Services mainly due to the fact that the commission has two unfilled full-time positions

that are included in the budgeted amount.

The variance in the incentive and marketing payments line item is

mainly due to unspent marketing funds in the amount of $322,000.

VIRGINIA RACING COMMISSION

SCHEDULE OF REVENUES, EXPENSES, AND CHANGES

IN CASH BALANCES - BUDGET AND ACTUAL

For the year ended, June 30, 2008

Total Variance

Total

Breeders

Operating

Positive/

Budget

Fund

Total

(Negative)

Revenues:

Taxes and pari-mutuel wagering

5,010,000

1,608,579

3,035,407

4,643,986

(366,014)

Application fees

150,000

144,719

(5,281)

Fines and assessments

12,000

12,775

775

Interest

35,000

42,564

3,816

46,380

11,380

Total revenues

5,207,000

1,651,143

3,196,717

4,847,860

(359,140)

Expenditures:

Personal services

1,210,209

1,042,751

167,458

Contractual services

555,454

575,507

(20,053)

Supplies and materials

16,000

21,160

(5,160)

Incentive and marketing payments

3,137,000

1,934,254

858,343

2,792,597

344,403

Continuous charges

42,650

95,246

(52,596)

Equipment

21,239

1,297

19,942

Total expenditures

4,982,552

1,934,254

2,594,304

4,528,558

453,994

Transfers out:

General fund

815,870

816,049

(179)

Literary Fund

12,000

12,775

(775)

Total Transfers

827,870

828,824

(954)

Revenues over (under) expenditures

and transfers out

(603,422)

(283,111)

(226,411)

(509,522)

93,900

Cash Balance at June 30,2007

1,648,851

968,845

680,006

1,648,851

Cash Balance at June 30, 2008

1,045,429

685,734

453,595

1,139,329

93,900

Source:

Commonwealth Accounting and Reporting System

Actual

September 28, 2008

The Honorable Timothy M. Kaine

The Honorable M. Kirkland Cox

Governor of Virginia

Chairman, Joint Legislative Audit

State Capital

and Review Commission

Richmond, Virginia

General Assembly Building

Richmond, Virginia

We have audited the financial records and operations of the

Virginia Racing Commission

for the

year ended June 30, 2008.

We conducted this performance audit in accordance with generally accepted

Government Auditing Standards, issued by the Comptroller General of the United States.

Those standards

require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable

basis for our findings and conclusions based on our audit objectives.

We believe that the evidence obtained

provides a reasonable basis for our findings and conclusions based on our audit objectives.

Audit Objectives

Our audit’s primary objectives were to evaluate the accuracy of recorded financial transactions on the

Commonwealth Accounting and Reporting System, review the adequacy of the Commission’s internal

controls, test compliance with applicable laws and regulations, and review corrective actions of audit findings

from prior year reports.

Audit Scope and Methodology

The Commission’s management has responsibility for establishing and maintaining internal control

and complying with applicable laws and regulations.

Internal control is a process designed to provide

reasonable, but not absolute, assurance regarding the reliability of financial reporting, effectiveness and

efficiency of operations, and compliance with applicable laws and regulations.

We gained an understanding of the overall internal controls, both automated and manual, sufficient to

plan the audit.

We considered materiality and control risk in determining the nature and extent of our audit

procedures.

Our review encompassed controls over the following significant cycles, classes of transactions,

and account balances.

Contractual services expenditures

Small Purchase Charge Card

Incentive and marketing payments

Tax and pari-mutuel wagering revenues

License and permit fees

TRAC V System

Payroll expenditures

We performed audit tests to determine whether the Commission’s controls were adequate, had been

placed in operation, and were being followed.

Our audit also included tests of compliance with provisions of

applicable laws and regulations.

Our audit procedures included inquiries of appropriate personnel and

observation of the Commission’s operations.

We inspected documents including reconciliations, deposit slips

and certificates, wagering reports provided by Colonial Downs, revenue summary reports and contracts.

tested transactions and performed analytical procedures.

Conclusions

We found that the Commission properly stated, in all material respects, the amounts recorded and

reported in the Commonwealth Accounting and Reporting System.

The Commission records its financial

transactions on the cash basis of accounting, which is a comprehensive basis of accounting other than

accounting principles generally accepted in the United States of America.

The financial information

presented in this report came directly from the Commonwealth Accounting and Reporting System.

We noted no matters involving internal control and its operation that we consider necessary to be

reported to management.

The results of our tests of compliance with applicable laws and regulations

disclosed no instances of noncompliance or other matters that are required to be reported under Government

Auditing Standards.

The Commission has taken adequate corrective action with respect to audit findings reported in the

prior year that are not repeated in this letter.

EXIT CONFERENCE AND REPORT DISTRIBUTION

We discussed this report with management on October 2, 2008.

This report is intended for the information and use of the Governor and General Assembly,

management, and the citizens of the Commonwealth of Virginia and is a public record.

AUDITOR OF PUBLIC ACCOUNTS

DM:clj

VIRGINIA RACING COMMISSION

Peter C. Burnett

Chairman

Mark T. Brown

Clinton Miller

William (Trip) H. Ferguson

David C. Reynolds

Vic Harrison

Executive Secretary

Stanley Bowker

Executive Secretary/Chief Steward

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